<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
May 6, 1996
Smith's Food & Drug Centers, Inc.
(Exact name of registrant as specified in its charter)
Delaware 001-10252 87-0258768
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification Number)
incorporation)
1550 South Redwood Road 84104
Salt Lake City, UT (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code (801) 974-1400
<PAGE>
2
Item 5. Other Events
Smith's Food & Drug Centers, Inc. (the "Company") has previously entered
into a definitive Recapitalization Agreement and Plan of Merger, dated as of
January 29, 1996 (the "Recapitalization Agreement"), with Cactus Acquisition,
Inc., a wholly owned subsidiary of the Company ("Acquisition"), Smitty's
Supermarkets, Inc. ("Smitty's") and The Yucaipa Companies ("Yucaipa"). In the
Recapitalization Agreement, the Company has agreed to (i) commence a self tender
offer (the "Offer") to purchase 50% of the Company's outstanding common stock
for $36.00 in cash per share and (ii) consummate the merger of Smitty's with
Acquisition pursuant to which Smitty's will become a wholly owned subsidiary of
the Company and stockholders of Smitty's will receive 3,038,888 shares of the
Company's Class B Common Stock (the "Merger"). On April 25, 1996, the Company
commenced the Offer and, on or about such date, the Company also mailed to the
Company's stockholders its Offer to Purchase, together with the related Letter
of Transmittal and other Offer materials, and its definitive Proxy Statement for
the solicitation of proxies at the Company's Annual Meeting of Stockholders
scheduled for May 23, 1996 (the "Stockholders' Meeting"). It is anticipated that
the Offer, the Merger and the other transactions contemplated by the
Recapitalization Agreement (collectively, the "Transactions") will close
promptly following the Stockholders' Meeting.
The Company has recently filed an amendment to its registration statement
on Form S-3 (File No. 333-01601) (the "Registration Statement") pursuant to
which the Company has amended the contemplated capital structure of the Company
for financing a portion of the Transactions. The Company had originally intended
to issue a series of $150 million of senior notes, a series of $350 million of
senior subordinated notes and a series of $75 million of cumulative redeemable
exchangeable preferred stock to raise a portion of the financing of the
Transactions. As amended, the Registration Statement currently provides for the
issuance of a single series of senior subordinated notes due 2007 (the "Notes")
in an aggregate principal amount of $575 million, rather than the issuance of
three separate series of securities of the Company. The Company believes that
the simpler capital structure will enable the Company to manage more efficiently
its current and future sources of liquidity and capital resources.
As a result of the Company's amendment of its contemplated capital
structure, the Company has amended the Unaudited Pro Forma Financial Data
contained in the Registration Statement, which give effect to the Transactions
as well as the sale, lease and closure of the Company's Southern California
operations and the disposition of the Company's closed stores and excess land in
California. The amendments to the Company's Unaudited Pro Forma Financial Data
reflect, among other things, (i) an increase in the Company's interest expense
to $141.7 million from $132.3 million, (ii) an increase in income (loss)
applicable to common shares to $3.8 million (or $.24 per common share) from
negative $.4 million (or negative $.03 per common share),
<PAGE>
3
(iii) an increase in total long-term debt to $1,431.8 million from $1,356.8
million and (iv) an increase in the Company's ratio of earnings to fixed charges
and preferred stock dividends to 1.06x from 1.01x, in each case, as applicable,
for the 52 week period ended or as of December 30, 1995.
The Company has filed with this report the amended Unaudited Pro Forma
Financial Data which the Company included in its amendment of the Registration
Statement and such amended Unaudited Pro Forma Financial Data are incorporated
herein by reference. The information set forth above shall not be deemed to
constitute either an offer to sell, or the offer to purchase, any security. Any
such offer to sell or offer to purchase will be made only by means of a
prospectus or an offer to purchase.
<PAGE>
4
Item 7. Financial Statements and Exhibits
(a) Financial Statements of the business acquired.
Not applicable.
(b) Pro forma financial information.
The Unaudited Pro Forma Financial Data filed as Exhibit 99.1 herewith
is incorporated herein by reference. Such Unaudited Pro Forma
Financial Data has been filed with the Securities and Exchange
Commission as part of an amendment to the Company's Registration
Statement for the Notes. Capitalized terms included in the Unaudited
Pro Forma Financial Data, and the related notes thereto, shall have
the meanings given to them in the Registration Statement, as the
context requires.
(c) Exhibits.
99.1 The Company's Unaudited Pro Forma Financial Data
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SMITH'S FOOD & DRUG CENTERS, INC.
May 7, 1996 By: /s/ Michael C. Frei
-------------------------
Name: Michael C. Frei
Title: Senior Vice President and
General Counsel
<PAGE>
Exhibit 99.1
------------
PRO FORMA CAPITALIZATION
The following table sets forth the consolidated pro forma capitalization of
the Company at December 30, 1995, giving effect to the Transactions and the
California Disposition. This table should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements, and the related notes
thereto, filed with this Report.
<TABLE>
<CAPTION>
PRO FORMA
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Current portion of long-term debt:
New Term Loans.................................... $ 12.3
Other indebtedness................................ 1.4
--------
Total current portion of long-term debt......... $ 13.7
========
Long-term debt:
New Term Loans(a)................................. $ 792.7
New Revolving Facility(a)(b)...................... --
Senior Subordinated Notes......................... 575.0
Other indebtedness................................ 50.4
--------
Total long-term debt............................ 1,418.1
--------
Redeemable preferred stock, $.01 par value.......... 3.3
Common stockholders' equity:
Common Stock, $.01 par value(c)................... 0.2
Additional paid-in capital........................ 164.9
Retained earnings (deficit)....................... (286.7)
--------
Total common stockholders' equity (deficit)..... (121.6)
--------
Total capitalization.......................... $1,299.8
========
</TABLE>
- --------
(a) The Company has obtained a commitment from Bankers Trust and Chase
Manhattan for the New Credit Facility that will provide up to $805 million
aggregate principal amount of New Term Loans and a $190 million New
Revolving Facility which will be available for working capital
requirements and general corporate purposes. A portion of the New
Revolving Facility may be used to support letters of credit, approximately
$28 million of which are anticipated to be issued at Closing. The New
Credit Facility will be guaranteed by all subsidiaries of the Company,
including Smitty's.
(b) Assumes that all outstanding Smitty's Notes and Smitty's Debentures are
tendered and accepted for purchase in connection with the Smitty's
Refinancing. If all of the outstanding Smitty's Notes and Smitty's
Debentures are not tendered and accepted for purchase, the Company
anticipates that it would reduce other borrowings. As a result of the
assumed application of a portion of the proceeds of the California
Disposition to eliminate pro forma revolving credit balances, pro forma
total debt at December 30, 1995 does not reflect anticipated revolving
credit facility borrowings upon consummation of the Transactions of $13.2
million.
(c) Does not reflect (i) management options to purchase up to an aggregate of
808,250 shares of Class B Common Stock expected to be outstanding upon
consummation of the Transactions or (ii) Warrants to purchase shares of
Class C Common Stock of the Company (at an initial exercise price of
$50.00 per share) to be issued to Yucaipa upon consummation of the
Transactions.
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of the
Company for the 52 weeks ended December 30, 1995 give effect to (a) the
Transactions and the application of the proceeds therefrom and (b) the
California Disposition and the retention of the anticipated proceeds therefrom
as cash (after reducing pro forma revolving credit balances to zero), in each
case as if such transactions occurred on January 1, 1995, with respect to the
pro forma operating and other data, and as of December 30, 1995, with respect to
the pro forma balance sheet data. Such pro forma information: (i) eliminates the
results of operations of the Company's California retail division and the
related assets and liabilities as of and for the 52 weeks ended December 30,
1995 from Smith's results of operations and balance sheet data as of and for the
52 weeks ended December 30, 1995 and (ii) combines the operating results and
balance sheet data of Smith's, pro forma for the elimination of the Company's
California retail division and the related assets and liabilities, as of and for
the 52 weeks ended December 30, 1995 with the operating results and balance
sheet data of Smitty's as of and for the 52 weeks ended January 14, 1996.
As indicated above, the Unaudited Pro Forma Combined Financial Statements
give effect to the California Divestiture and the California Asset Disposition
and the retention of the anticipated proceeds therefrom as cash. In connection
with the California Divestiture, Smith's entered into agreements to sell or
lease 16 stores and related equipment and three non-operating properties. These
transactions are expected to generate net cash proceeds of $77.8 million, of
which $67.2 million has been received to date. The remaining 18 stores in
California have been closed. In connection with the California Divestiture, the
Company recorded the $140 million (pre-tax) California Divestiture Charge for
the year ended December 30, 1995 and classified the assets to be leased or sold
as "assets held for sale." The California Divestiture Charge reflected (i) a
provision for anticipated future lease obligations, (ii) the anticipated cost to
the Company of closing its California stores and distribution center (primarily
termination payments and inventory), and (iii) certain asset valuation
adjustments. The asset valuation adjustments included in the California
Divestiture Charge reflected the reduction in net realizable values for the
equipment in all of the Company's California stores and distribution center and
for the land and buildings associated with those properties being sold or
leased. Pursuant to the California Asset Disposition, following the consummation
of the Transactions the Company intends to accelerate the disposition of its 18
non-operating stores and its excess land in California. As a result of the
adoption of this strategy, the Company intends to record a pre-tax charge to
earnings of approximately $125 million (the California Asset Disposition Charge)
to reflect the difference between the anticipated cash proceeds from the
accelerated dispositions and the Company's existing book values for such assets.
For purposes of the Unaudited Pro Forma Combined Balance Sheet, the Company has
given effect to the California Asset Disposition as if each of the relevant
properties had been sold for a cash amount equal to its net book value after
giving effect to the California Asset Disposition Charge. The proceeds of such
assumed sales, together with the proceeds of the California Divestiture, are
reflected in the Company's pro forma cash balances (net of pro forma revolving
credit borrowings, which have been eliminated) at December 30, 1995. INVESTORS
ARE CAUTIONED THAT THE COMPANY HAS NOT ENTERED INTO ANY CONTRACTS RELATING TO
THE CALIFORNIA ASSET DISPOSITION AND THAT THERE CAN BE NO ASSURANCE AS TO THE
TIMING OR THE AMOUNT OF NET PROCEEDS, IF ANY, WHICH THE COMPANY WILL ACTUALLY
RECEIVE FROM SUCH DISPOSITION.
The pro forma adjustments to give effect to the California Disposition
and the Transactions are based upon currently available information and upon
certain assumptions that management believes are reasonable. The statement of
results of operations used to derive the adjustments to eliminate the California
results of operations differs from a complete statement in that allocations
for interest expense and certain services provided by the Company, including,
but not limited to, portions of legal assistance, employee benefits
administration, treasury, accounting, auditing, tax functions and real estate,
have not been made. The Merger will be accounted for by the Company as a
purchase of Smitty's by Smith's and Smitty's assets and liabilities will be
recorded at their estimated fair market values at the date of the Merger. The
adjustments included in the Unaudited Pro Forma Combined Financial Statements
represent the Company's preliminary determination of these adjustments based
upon available information. There can be no assurance that the actual
adjustments will not differ significantly from the pro forma adjustments
reflected in the pro forma financial information. The Unaudited Pro Forma
Combined Financial Statements are not necessarily indicative of either future
results of operations or results that
<PAGE>
might have been achieved if the foregoing transactions had been consummated as
of the indicated dates. The Unaudited Pro Forma Combined Financial Statements
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements of Smith's and Smitty's, together with the related notes
thereto, included in the Company's Registration Statement filed with the
Commission.
The Unaudited Pro Forma Combined Financial Statements do not reflect (i)
any of the net annual cost savings which management believes are achievable by
the end of the third full year of operations following the Merger, or (ii) the
anticipated costs to be incurred in connection with the integration of
operations in Arizona following the Merger. The Unaudited Pro Forma Combined
Statement of Operations included herein does not reflect the California
Divestiture Charge, the California Asset Disposition Charge, an extraordinary
loss on extinguishment of debt, an anticipated charge relating to certain costs
expected to be incurred by Smith's in connection with the Merger, a potential
severance payment to the Chairman and Chief Executive Officer of the Company or
compensation expense in connection with the repurchase of certain management
stock options as part of the Recapitalization. See Note (g) to the Unaudited Pro
Forma Combined Statement of Operations.
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------------------------------------
JANUARY 14, ADJUSTMENTS
DECEMBER 30, 1995 1996 FOR PRO FORMA
---------------------------------------------- ------------ CALIFORNIA COMBINED FOR
SMITH'S ADJUSTMENTS FOR PRO FORMA SMITH'S SMITTY'S DISPOSITION CALIFORNIA
(HISTORICAL) CALIFORNIA FOR CALIFORNIA (HISTORICAL) AND DISPOSITION
(AUDITED) DIVESTITURE(A) DIVESTITURE (UNAUDITED) TRANSACTIONS AND TRANSACTIONS
------------ --------------- ----------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ 3,083.7 $(674.6) $ 2,409.1 $ 584.3 $ $ 2,993.4
Cost of goods sold...... 2,386.7 (516.2) 1,870.5 419.6 2,290.1
---------- ------- ---------- --------- ------ ----------
697.0 (158.4) 538.6 164.7 703.3
Expenses:
Operating, selling and
administrative....... 461.4 (145.6) 315.8 136.0 0.4 (b) 452.2
Depreciation and
amortization......... 105.0 (27.0) 78.0 12.3 (1.3)(c)
0.9 (d) 89.9
Restructuring charges. 140.0 (140.0)
Interest.............. 60.0 60.0 18.4 63.3 (e) 141.7
Amortization of debt
issuance costs....... 0.4 0.4 1.0 8.8 (e) 10.2
---------- ------- ---------- --------- ------ ----------
Income (loss) before
income taxes........... (69.8) 154.2 84.4 (3.0) (72.1) 9.3
Income tax expense
(benefit).............. (29.3) 63.2 33.9 (0.7) (27.7)(f) 5.5
---------- ------- ---------- --------- ------ ----------
Net income (loss) (g)... $ (40.5) $ 91.0 $ 50.5 $ (2.3) $(44.4) $ 3.8
========== ========== ========= ==========
Net income (loss) per
common share (g)....... $ (1.62) $ 2.00 $ (2.30) $ 0.24 (h)
========== ========== ========= ==========
Weighted average common
shares outstanding..... 25,031,000 25,284,000 1,001,000 15,530,000
========== ========== ========= ==========
Ratio of earnings to
fixed charges (i)...... -- 2.27x 1.06x
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(a) Reflects the elimination of the 1995 operating results for the California
stores, excess real estate and distribution center which were sold, leased
or closed, and the reversal of the restructuring charge recorded, in
connection with the California Divestiture and the anticipated sale of the
Company's remaining California real estate pursuant to the California Asset
Disposition, but does not reflect the California Asset Disposition Charge of
$125 million (pre-tax) which is anticipated to be recorded in connection
with the adoption of a strategy to dispose of such remaining California
assets following the consummation of the Transactions.
(b) Represents fees payable to Yucaipa pursuant to the Management Services
Agreement ($1.0 million) and the elimination of the historical Yucaipa
management fees ($0.6 million) paid by Smitty's.
(c) Represents a reduction in depreciation expense associated with the $14.1
million write-off of accumulated depreciation and amortization which adjusts
Smitty's property and equipment to estimated fair market value.
(d) Reflects the amortization of excess costs over net assets acquired in the
Merger ($2.0 million) and the elimination of Smitty's historical
amortization ($1.1 million). Amortization has been allocated on the straight
line basis over a period of 40 years.
(e) The following table presents a reconciliation of pro forma interest expense
and amortization of debt issuance costs:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
Interest expense:
Smitty's.......................................... $ 18.4
Pro forma Smith's................................. 60.0
------
78.4
------
Plus: Interest on:
New Term Loans.................................... 71.5
Bank fees......................................... 0.3
Notes............................................. 63.3
Less: Interest on:
Old bank term loans:
Pro forma Smith's............................... (59.5)
Smitty's........................................ (3.1)
Bank fees......................................... (0.4)
Smitty's Notes.................................... (6.5)
Accretion of Smitty's Debentures.................. (2.3)
------
Pro forma adjustment............................... 63.3
------
Pro forma interest expense.......................... $141.7
======
Historical amortization of debt issuance costs...... $ 1.4
Plus:
Financing fees--New Credit Facility............... 7.2
Financing fees--Notes............................. 3.0
Less:
Historical financing costs:....................... (1.4)
------
Pro forma adjustment............................... 8.8
------
Pro forma amortization of debt issuance costs....... $ 10.2
======
</TABLE>
(f) The pro forma adjustment to income tax benefit is based upon an assumed
blended rate of 39% applied to the pro forma net loss adjusted for permanent
differences between book and tax income. The deferred tax asset recognized
in the Unaudited Pro Forma Combined Financial Statements is more likely than
not to be realized due to the expected future reversal of taxable temporary
differences and the existence of taxable income in each of the prior three
carryback years available.
(g) The Unaudited Pro Forma Statement of Operations does not reflect the
California Asset Disposition Charge, the California Divestiture Charge or
costs related to (i) expenses to be incurred in connection with the purchase
of certain management stock options as part of the Recapitalization which
are estimated to be $12.5 million, (ii) the integration of the Company's
operations which are estimated to be $15.0 million over a two-year period
and (iii) a potential severance payment to the Chairman and Chief Executive
Officer of the Company (definitive agreements with respect to which have not
yet been reached). The unaudited pro forma results of operations also does
not include an extraordinary item for the loss on extinguishment of debt of
$42.5 million, net of $27.2 million income tax benefit.
(h) Net income (loss) per common share has been computed using the weighted
average number of shares of Smith's Common Stock outstanding after giving
effect to the issuance of 3,038,888 shares of Class B Common Stock of the
Company to the stockholders of Smitty's as consideration in the Merger and
the purchase of 50% of the outstanding Smith's Common Stock (excluding
shares issuable in the Merger) in the Tender Offer. Common stock equivalents
in the form of stock options do not have an impact on the weighted average
number of common shares.
<PAGE>
(i) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income (loss) before income taxes and fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs, and one-third of rental expense (the portion of
annual rental expense deemed by the Company to be representative of the
interest factor).
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------------------------------------
JANUARY 14, ADJUSTMENTS
DECEMBER 30, 1995 1996 FOR PRO FORMA
---------------------------------------------- ------------ CALIFORNIA COMBINED FOR
SMITH'S ADJUSTMENTS FOR PRO FORMA SMITH'S SMITTY'S DISPOSITION CALIFORNIA
(HISTORICAL) CALIFORNIA FOR CALIFORNIA (HISTORICAL) AND DISPOSITION
(AUDITED) DIVESTITURE(A) DIVESTITURE (UNAUDITED) TRANSACTIONS AND TRANSACTIONS
------------ --------------- ----------------- ------------ ------------ ----------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents......... $ 16.1 $ $ 16.1 $ 11.5 $ 82.7 (b)(c) $ 110.3
Rebates and accounts receivable... 23.8 (5.0) 18.8 9.3 28.1
Inventories....................... 395.0 (76.0) 319.0 56.7 1.0 (d) 376.7
Prepaid expenses and deposits..... 21.3 (2.0) 19.3 3.3 22.6
Refundable income taxes........... 1.9 1.9
Deferred tax assets............... 23.9 13.1 37.0 18.0 (e) 55.0
Assets held for sale.............. 125.0 (125.0)
-------- ------- -------- ------ ------- --------
Total current assets............ 605.1 (194.9) 410.2 82.7 101.7 594.6
Property and equipment:
Land.............................. 276.6 276.6 18.6 (128.3)(c) 166.9
Building.......................... 610.0 610.0 50.6 (107.2)(c)(f) 553.4
Leasehold improvements............ 55.8 55.8 9.8 (20.2)(c)(f) 45.4
Furniture and equipment........... 509.5 509.5 69.9 (27.9)(c)(f) 551.5
-------- ------- -------- ------ ------- --------
Less allowances for depreciation
and amortization................ (390.9) (390.9) (14.1) 23.3 (c)(f) (381.7)
-------- ------- -------- ------ ------- --------
Net property and equipment...... 1,061.0 1,061.0 134.8 (260.3) 935.5
Goodwill, net...................... 31.5 46.7 (g) 78.2
Other assets....................... 20.1 (4.6) 15.5 11.0 78.6 (h)(i) 105.1
-------- ------- -------- ------ ------- --------
$1,686.2 $(199.5) $1,486.7 $260.0 $ (33.3) $1,713.4
======== ======= ======== ====== ======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Trade accounts payable........... $ 214.2 $ (42.0) $ 172.2 $ 39.6 $ 0.0 $ 211.8
Accrued sales and other taxes
and other liabilities........... 50.7 (12.0) 38.7 12.0 (12.6)(j)
10.0 (k) 48.1
Accrued payroll and
related benefits................. 97.5 (32.0) 65.5 19.2 84.7
Current maturities of
long-term debt................... 20.9 20.9 6.2 (13.4)(l) 13.7
Current maturities of Redeemable
Preferred Stock.................. 1.0 1.0 (1.0)(m)
Accrued restructuring costs....... 58.0 (58.0)
-------- ------- -------- ------ ------- --------
Total current liabilities....... 442.3 (144.0) 298.3 77.0 (17.0) 358.3
Long-term debt, less
current maturities................ 725.3 (28.6) 696.7 139.8 611.4 (n)
(39.4)(c)
(0.9)(n)
4.6 (i)
13.4 (l)
(7.5)(o) 1,418.1
Accrued restructuring costs, less
current portion................... 40.0 (40.0)
Deferred income taxes.............. 58.6 13.1 71.7 13.8 (27.2)(p)
(30.7)(e) 27.6
Other liabilities.................. 20.2 7.5 (o) 27.7
Redeemable Preferred Stock, less
current maturities................ 3.3 3.3 3.3
Common Stockholders' Equity:
Convertible Class A Common Stock... 0.1 0.1 0.1
Class B Common Stock............... 0.2 0.2 (0.1)(q) 0.1
Additional paid-in capital......... 285.2 285.2 11.0 (11.0)(r)
(165.8)(q)
45.5 (s) 164.9
Retained earnings(t)............... 238.0 238.0 (1.8) (35.2)(u)
(405.9)(q)
(76.3)(e)
(7.3)(v)
1.8 (r) (286.7)
-------- ------- -------- ------ ------- --------
523.5 523.5 9.2 (654.3) (121.6)
Less cost of common stock in
the treasury..................... (106.8) (106.8) (464.9)(q)
571.7 (q)
-------- ------- -------- ------ ------- --------
416.7 416.7 9.2 (547.5) (121.6)
-------- ------- -------- ------ ------- --------
$1,686.2 $(199.5) $1,486.7 $260.0 $ (33.3) $1,713.4
======== ======= ======== ====== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Balance Sheet.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) Reflects the sale of the California stores and other related assets,
excess real estate and distribution center in connection with the
California Divestiture. The Company has received $67.2 million subsequent
to December 30, 1995 and expects to receive an additional $10.6 million
shortly after the consummation of the Transactions. The net proceeds of
such sale is reflected as a reduction of the historical revolving credit
balance ($28.6 million) and payment of certain liabilities in the
Company's Unaudited Pro Forma Combined Balance Sheet at December 30, 1995.
(b) Reflects gross proceeds received from (i) New Term Loans, (ii) the New
Revolving Facility, and (iii) the Offering used to finance the Transactions
and pay related costs and fees as set forth in the following table:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
New Term Loans...................................... $ 805.0
Notes............................................... 575.0
Repay Smitty's Notes................................ (50.0)
Discount on Smitty's Notes.......................... 0.4
Repay Smitty's Debentures........................... (18.4)
Discount on Smitty's Debentures..................... 0.5
Repay Smitty's Bank Credit Facility................. (34.9)
Repay Smith's Mortgage Notes and Other Indebtedness. (667.1)
Purchase existing Smith's Series I Preferred Stock.. (1.0)
Purchase 50% of Smith's Common Stock................ (451.3)
Purchase Management Options......................... (13.7)
Accrued Interest.................................... (12.6)
Fees and Expenses................................... (145.1)
-------
Use of California Proceeds (See Note (c)).......... $ 13.2
=======
</TABLE>
(c) Assumes the anticipated sale of the Company's remaining California real
estate pursuant to the California Asset Disposition. Also reflects the
California Asset Disposition Charge of $125 million (pre-tax) in
connection with the adoption of a strategy to dispose of such remaining
California assets following the consummation of the Transactions.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
Disposal of Property and Equipment
Land.............................................. $ 128.3
Buildings......................................... 104.0
Leasehold improvements............................ 19.6
Furniture and equipment........................... 17.6
-------
269.5
Depreciation and amortization..................... (9.2)
-------
Net book value of property and equipment.......... 260.3
Write-down of California assets to net realizable
value............................................ (125.0)
-------
Proceeds from California Asset Disposition........ 135.3
Reduction in historical revolving credit balance
................................................. (39.4)
Reduction of anticipated indebtedness under the
New Revolving Facility
(See Note (b))................................... (13.2)
-------
Cash provided by the California Asset
Disposition.................................... $ 82.7
=======
</TABLE>
(d) Reflects the elimination of Smitty's historical LIFO reserve which adjusts
Smitty's inventory to reflect current estimated selling prices less costs
of disposal and a reasonable profit allowance for the acquiring company.
(e) Represents the $125 million California Asset Disposition Charge, tax
effected at 39% tax rate and the recognition of the related deferred tax
asset. The California Asset Disposition Charge reflects the write-down of
California assets, other than assets held for sale at December 30, 1995,
under the Company's strategy to accelerate the disposition of its 18 non-
operating stores and excess land in California following the consummation
of the Transactions.
(f) Reflects the write-off of accumulated depreciation and amortization which
adjusts Smitty's property and equipment to estimated fair market value.
<PAGE>
(g) Reflects the excess of costs over the fair value of net assets of Smitty's
acquired in connection with the Merger ($78.2 million) and the elimination
of Smitty's historical goodwill ($31.5 million). The purchase price for
Smitty's will be determined by reference to the trading price of the
Company's Class B Common Stock following the consummation of the Merger.
The purchase price and preliminary calculation of the excess of costs over
the fair value of net assets acquired is as follows:
<TABLE>
<CAPTION>
Purchase Price:
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
Smith's equity received in exchange for Smitty's equity
with an assumed market value of $15.00/share........... $ 45.5
Fees and expenses....................................... 1.4
-------
Total purchase price.................................... 46.9
Fair value of assets acquired........................... 229.5
Fair value of liabilities assumed....................... 260.8
-------
(31.3)
-------
Goodwill................................................ $ 78.2
=======
</TABLE>
(h) Reflects the debt issuance costs associated with the New Credit Facility
($52.5 million) and the Notes ($33.5 million). These amounts have been
capitalized as deferred financing costs.
(i) Reflects the elimination of deferred financing costs associated with the
Smitty's Bank Credit Facility ($1.8 million), the Smitty's Notes ($3.1
million), the Smitty's Debentures ($0.6 million), the Smith's Mortgage
Notes and Other Indebtedness ($1.9 million) and the write-off of an
interest rate swap agreement ($4.6 million), included in historical long-
term debt, to be refinanced in connection with the Merger.
(j) Reflects the payment of accrued interest on Smitty's Bank Credit Facility
($0.1 million), Smitty's Notes ($0.6 million) and Smith's Mortgage Notes
and Other Indebtedness ($11.9 million) to be repaid in connection with the
Merger.
(k) Represents severance payments and other costs associated with the
integration of Smith's and Smitty's.
(l) Reflects the repayment and cancellation of the current maturities of the
Smitty's Bank Credit Facility ($4.9 million) and Smith's Mortgage Notes
and Other Indebtedness ($20.8 million) and the recording of the current
maturities of the New Term Loans ($12.3 million).
(m) Reflects the retirement of 3,000,000 shares of Series I Preferred Stock.
(n) Reflects the repayment and cancellation of the Smitty's Bank Credit
Facility, the Smitty's Notes, the Smitty's Debentures, the Smith's
Revolving Credit Facility, the Smith's Mortgage Notes and Other
Indebtedness and records borrowings under the New Term Loans and New
Revolving Facility and the issuance of the Notes.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
New Term Loans........................................ $ 805.0
Notes................................................. 575.0
Repay Smitty's Notes.................................. (50.0)
Discount on Smitty's Notes ........................... 0.4
Repay Smitty's Debentures............................. (18.4)
Discount on Smitty's Debentures ...................... 0.5
Repay Smitty's Bank Credit Facility................... (34.9)
Repay Smith's Mortgage Notes and Other Indebtedness... (667.1)
-------
$ 610.5
=======
</TABLE>
(o) Represents a reclassification of $7.5 million of Smith's deferred
compensation and other long-term liabilities to conform to the pro forma
combined classification.
(p) Represents the deferred tax asset associated with the write-off of the
deferred debt issuance costs and the premium over book value on Smith's
and Smitty's debt to be refinanced. The deferred tax asset recognized in
the Unaudited Pro Forma Combined Financial Statements is more likely than
not to be realized due to the expected future reversal of taxable
temporary differences and the existence of taxable income in each of the
prior three carryback years available.
(q) Reflects redemption of 50% of Smith's outstanding Common Stock prior to
the Merger at $36.00 per share, the retirement of all treasury shares and
the purchase of certain outstanding management stock options.
(r) Reflects the elimination of Smitty's historical equity.
(s) Represents the issuance of 3,038,888 shares of Smith's Common Stock at an
assumed market value of $15.00 per share as consideration in the Merger.
(t) The Unaudited Pro Forma Combined Balance Sheet does not include (i)
certain costs related to the purchase of certain management stock options
as part of the Recapitalization which are estimated to be $12.5 million,
(ii) the integration of the Company's operations which are estimated to be
$15.0 million over a two-year period and (iii) a potential severance
payment to the Chairman and Chief Executive Officer of the Company
(definitive agreements with respect to which have not yet been reached).
(u) Represents the premium over book value attributable to "make whole"
payments and other premiums payable in connection with the retirement of
Smith's Mortgage Notes and Other Indebtedness and the Smitty's Notes and
Debentures, net of 39% tax rate. The actual amount of such payments may
vary substantially based on the yields of certain U.S. Treasury debt
securities at the time such indebtedness is actually repaid.
(v) Represents the write-off of the historical deferred debt issuance costs of
Smith's and Smitty's related to its refinanced debt, net of 39% tax rate.
